Antitrust Economics and 'Junk Science'

[charles mueller <cmueller@metrolink.net>]

        Rajib Doogar apologized for his bad manners earlier--and of course I
accept his apology--but his latest post (below) suggests that he still
hasn't got the hang of civil, gracious discussion. 

        One gets the impression that here is a youngster--probably fresh out
of graduate school (perhaps he would share with us a copy of his vita?)--who
is confident that he knows all that's worth knowing and is eager to
demonstrate his intellectual prowess by knocking off one of the giants of
economics, say, the late Joe Bain.  A youthful gunslinger making his
reputation, all set to get into the street with one of the champions, e.g.,
a Doc Holiday like Bain.  And why not go all the way and polish off Adam
Smith (the real one) who disdained the "mean rapacity" and "wretched spirit
of monopoly," pointing out that 2 firms were always better for the public
than 1 and that "if it [the market] were divided among 20, their competition
would be just so much the greater."  Competition continues to increase as
the number of firms rises from 1, to 2, to 20?   Sounds a lot like Joe Bain
to me.

        Asking questions can be a sign of real intellectual curiosity.  When
dumped en masse, however, and delivered in the tone of a prosecutor, they
take on a different connotation.  A debater eager to score points, not
someone looking for solid information or concerned with the public interest.
Boogar is evidently new to this list, unaware first of its long tradition of
civility.  Secondly, he has apparently not bothered to visit my Web
site--which contains a couple of hundred pages on antimonopoly policy--or
review the 30 years of my journal that he should be able to find in his
library.  Thirdly, I've contributed literally scores of posts on antitrust
to this list--which are presumably available in its archives.  Rajib can
thus access my views on just about everything in this area with the push of
a couple of buttons.  
(Hopefully his vita, mentioned above, will let us know about his own no
doubt extensive studies and writings in the antimonopoly field.)

        Should there be anything else in the monopoly area that the
membership would like me to address further, please let me know.

        Charles Mueller, Editor
        ANTITRUST LAW & ECONOMICS REVIEW
        http://webpages.metrolink.net/~cmueller

                                                       **************

At 08:47 AM 5/5/98 GMT, you wrote:
>charles mueller (cmueller@metrolink.net) wrote:
>
>:         U.S. antimonopoly policy essentially died around 1975, with the
>: introduction of 'economic' science as its controlling standard.   
>
>at the risk of being tiresome, let me propose a few specific
>questions.  what do you propose instead of economic science?  since
>you like Bain's work, I'm rapidly getting the impression that you
>would find anything else unacceptable.  since it has already been
>pointed out that the interpretation of Bain's results a) is rendered
>somewhat ambiguous by later understandings of the consequences of
>various market frictions, and b) may be outdated, it isn't clear
>*what* you are proposing to replace present anti-trust policy except
>big is bad.  This may indicate a well oiled knee, but its not clear
>what else it indicates.
>
>: 
>:         It now holds that mergers yielding single-firm market shares of 60%,
>: 90%, and even 100% are perfectly consistent with 'competition' and
>: 'competitive prices' for the consuming public.
>
>I would like to use these cites for a paper I'm working on.  Where
>have 90% and 100% shares been held to show this?  I am not disputing
>this, merely asking a favor -- I am sure from what follows that there
>must be some airline industry cites at a minimum.
>
>:         All this is obviously pure economic fantasy.  In the airline
>: industry, for example, fares are nicely corelated with the market share of
>: the dominant firm at each of the airline cartel's big-city 'hubs.'  U.S.
>: industry, for example, ponies up 10 times as much to fly its employees from
>: A to B when the departing hub has been 'consolidated'  down to a 1-firm-90%
>: share, as contrasted with one where Southwest and the other 'no-frills'
>: airlines are allowed a fair share of the gates and landing slots.
>
>Is it the case that we are comparing a full-service airline to a
>no-frills airline?  Direct flights to short-hop flights?  Frequent
>flier miles to no frequent flier miles (ffms coupled with corporate
>travel are a great way to exploit agency frictions in favor of
>airlines with those plans).  [This is not to deny that the airlines may
>well be a cartel and benefit from more active regulatory oversight.]
>
>The empirical question is whether the US air traveller is better off
>with deregulation and some abuse of market power or under regulation
>and capture?  Perhaps simply restricting airlines to 85% instead of
>90% will make the market contestable?  Where would you draw the line?
>How much is too much?  Should one have only no-frills airlines?  What
>does the the empirical work you consider credible suggest?  It is one
>thing to argue that people pay more.  Another to show that this is a
>result of abuse of market power.  Unless you are counting inefficient
>production as part of the exercise of market power.  And still another
>thing to argue what the share should be set at to ensure competition.
>Again, this is as much meant to understand better what your views as
>opposed to your criticisms are.
>
>:         Joe Bain, an empiricist (like Adam Smith), did his homework.  The
>: theorists who have come after him, playing games with their computers, are
>: the ones who would most likely be thrown out of court if required to
>: demonstrate that they meet the rigorous intellectual demands of 'science.'
>
>Please define a bit more clearly what rigorous intellectual demands of
>science you consider the newer theoretical analyses not to have met?
>What precisely do you mean by reproducibility?  If the data sources
>are identified, the methods spelt out and standard disclosure
>practices followed would that suffice?  What is it about computer
>simulations you don't like/consider unreal or inadequate to meet the
>rigorous intellectual demands of science?  What would you say to
>weather modelling or modelling the big bang or nuclear fission on
>super-computers?  Why is playing games on computers less legitimate
>than playing games with paper and pencil or hand-cranked facit
>machines?
>
>Also, since as an editor you probably have a better feel for the pulse
>of the profession than the average individual economist, a question:
>given the huge returns to studies which would debunk the shoddy
>science of the theorists, why do you think such studies are not being
>done, inspite of the existence of open-minded outlets such as your
>journal, which I now understand to be highly reputable in the field?
>Surely never before has so much data been available to so many at so
>little cost?  I am trying to see if there is a reason for ten dollar
>bills to not be found on sidewalks you see.  If there is no reason not
>to find one, perhaps you could get at least one graduate student
>interested?
>
>:         An honest judge would admit Bain's hard empirical work as good
>: economic science--and would look closely indeed at whether the pro-monopoly
>: crowd's 'new' theories have the predictive power of real science.  A sound
>: policy would be:  Admit the empirics, ban the unsupported theories.  Let the
>
>This is like the old claim "The data speak for themself."  All data
>has to be interpreted.  Bain's interpretation may well have been right
>--the point is that one isn't sure its the only right one!  
>
>: economic 'expert' describe for the jury the empirical research he (and
>: others) has done but allow him to express no 'opinions.'  He has no real
>: science to back them up.  Joe Bain did.
>
>Isn't this an opinion?
>
>:         It might be helpful to mention that Bain did not, as the saying
>: goes, suffer fools gladly.  Were he alive today, his critics would be in for
>: the intellectual thrashing of their lives.  One of the big-name Chicago
>: theorists sent me a proposal for an article a couple of decades ago in which
>: he said he was going to debunk Joe Bain.  Naturally, I forwarded a copy of
>: the letter to Bain for his comment.  His reply spelled out with some
>: particularity how he would demonstrate the silliness of the proposed article
>: if it was actually written.  Fascinated with these developments, I passed
>: along Bain's note (to me) to the big-shot Chicagoan.  End of story.  He had
>: no stomach for taking on Joe Bain.  I never heard from him again about his
>: plans to intellectually dethrone Bain.  And no other Chicagoan, in the
>: ensuing decades, has ever asked to take him on in our pages. 
>
>Could you spell out the details while preserving the anonymity of
>those still alive?  We could all learn something from Bain's legendary
>ability to pithily debunk bunk.
>
>:         Adam Smith and Joe Bain had it right:  Big market shares equal
>: inflated prices, shoddy products, and suppressed technology.
>
>Not always.  These claims have to be shown case by case.  Much depends
>on the returns to scale and on MES relative to market size as well as
>issues such as capacity commitment as well as the role of sunk costs
>and the extent of free entry.  In all, a much more complicated
>picture.
>
>cheers.
>
>-- 
>Rajib Doogar                                   http://www.nd.edu/~rdoogar
>375 College of Business Administration 
>University of Notre Dame                              Ph:  (219) 631 6499
>Notre Dame, IN 46556-0339			      Fax: (219) 631 5255
>
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>"Think as I think," said a man, "or you are abominably wicked: You are a
>toad."  And after I had thought of it, I said, "I will, then, be a toad."
>                                                         -- Stephen Crane
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